Official Market – Legal Definition and Significance
The Official Market is a term from German stock exchange law and refers to a regulated market segment of the stock exchanges, in which securities are traded under strict legal admission requirements. Until the introduction of the Regulated Market, the Official Market was considered the most important market segment for trading shares and other securities in Germany. The legal framework of the Official Market was particularly determined by the German Stock Exchange Act and various subordinate regulations.
Historical Development of the Official Market
Origin and Development
The Official Market was introduced in the 19th century as part of the stock exchange legislation as a central segment for listed securities. The aim was to create a uniform, closely supervised trading venue for corporate shares and bonds that guarantees high transparency and investor protection.
Abolition and Successor
With the entry into force of the Fourth Financial Market Promotion Act in 2002, the term “Official Market” was officially abolished and merged into today’s “Regulated Market.” However, the legal regulations and requirements of the former Official Market were predominantly incorporated into the regulatory framework of the Regulated Market.
Legal Framework
Legal Foundations
The admission and trading of securities on the Official Market were regulated by the German Stock Exchange Act (BörsG) as well as the respective stock exchange regulations. Relevant provisions particularly concerned admission requirements, transparency obligations, disclosure, and reporting duties.
Admission Requirements
Issuer Requirements
- Legal Form: Issuers had to be organized in a legal form suitable for the capital market, usually as a stock corporation or equivalent companies.
- Minimum Capital: A certain minimum share capital was required (for instance, 1.25 million euros for stock corporations).
- Minimum Period of Existence: The company generally had to exist for at least three years.
Securities Requirements
- Denomination and Proper Status: Only fully paid-up (liberated) securities could be admitted.
- Minimum Free Float: A certain proportion of the securities had to be in free float to ensure adequate market liquidity.
Admission Procedure
The admission procedure was legally regulated and required the submission of comprehensive documents, in particular:
- Securities prospectus pursuant to the Securities Prospectus Act
- Annual financial statements and management reports of previous years
- Proof of registration in the commercial register
- Certificates of non-objection
The admission decision was made by the admissions office of the respective stock exchange, usually together with the Federal Financial Supervisory Authority (BaFin).
Supervision and Reporting Obligations
The Official Market was subject to extensive supervision by the stock exchange supervisory authorities. Issuers were required to publish quarterly and annual reports regularly, to issue ad hoc announcements on price-relevant events, and to disclose all changes regarding voting rights and corporate structure.
Disclosure and Transparency Obligations
Ad hoc Disclosure
Companies had to make all information that could significantly affect the stock exchange price immediately available to the market. This requirement served investor protection and the proper functioning of the market.
Financial Reporting
The publication of audited annual financial statements and management reports was mandatory and enforced through sanctions in case of non-compliance.
Insider Law Provisions
The prohibition of insider trading and the obligation to maintain insider lists applied directly to securities in the Official Market. This was due to the high market relevance of the securities traded.
Distinction from Other Market Segments
Regulated Market (today: Regulated Market)
The Official Market differed from the Regulated Market mainly in its stricter admission requirements, higher disclosure obligations, and tighter regulation. Today’s “Regulated Market” continues many of these standards.
Open Market (Freiverkehr)
In contrast to the Official Market, the Open Market (today: Open Market) was a less regulated segment with lower requirements for transparency and admission, which particularly considered smaller companies and exotic securities.
Significance for Investment and Capital Market
For decades, the Official Market in Germany represented the segment with the highest requirements for issuers and securities. For investors, this meant the highest degree of transparency, legal certainty, and investor protection. Stock market listings in the Official Market were regarded as a seal of quality for companies.
Current Relevance and Succession
Since 2002, the Official Market is no longer a term in German stock exchange law. Most of the regulations and structures have been transferred to today’s Regulated Market. The existing admission, supervision, and disclosure rules reflect the high standards of the former Official Market and continue to serve the protection of market participants and the stability of the financial markets.
Further Reading:
- Frankfurt Commentary on the German Stock Exchange Act
- Securities Trading Act (WpHG)
- Handbook of Stock Exchange Law
See also:
Status: June 2024
Frequently Asked Questions
What legal regulations apply to the Official Market in Germany?
In Germany, the Official Market is primarily governed by the Securities Trading Act (WpHG), the German Stock Exchange Act (BörsG), the stock exchange rules of the respective exchange, as well as European regulations such as MiFID II and the Market Abuse Regulation (MAR). Strict requirements apply to the admission of securities to the Official Market, particularly in accordance with the EU Prospectus Regulation, which prescribes the preparation, approval, and publication of a securities prospectus. In addition, issuers have extensive obligations regarding ad hoc disclosures, insider lists, directors’ dealings, and, under the Transparency Act, regular and event-driven notification duties. Conversely, the organizational implementation of trading is the responsibility of the respective exchange, which is supervised by the stock exchange supervisory authority of the relevant federal state and the Federal Financial Supervisory Authority (BaFin). Risks, duties, and legal remedies are tightly regulated by the aforementioned laws and regulations.
How are securities admitted to the Official Market?
Admission of securities to the Official Market requires a formal application by the issuer or the submitting credit institution to the respective exchange. The basis is set by the provisions of the German Stock Exchange Act (§ 32 ff. BörsG), which require the submission of extensive documentation, including the prospectus approved by BaFin, containing legal information about the issuer and the securities. The examination covers, among other things, the issuer’s legal and financial circumstances, compliance with requirements regarding free float, nominal value, and tradability. Further regulations depend on the specific rules of each exchange. Only when these conditions are met and an admission decision is made can the securities be traded on the Official Market. Admission establishes numerous ongoing legal obligations for the issuer.
What ongoing obligations do issuers face on the Official Market?
Issuers with securities on the Official Market are subject to numerous legal ongoing obligations. These especially include disclosure and information duties in accordance with the WpHG, such as the publication of annual and half-yearly financial reports, ad hoc announcements in the event of price-relevant incidents (under the Market Abuse Regulation), reporting obligations regarding voting rights (Transparency Directive), as well as obligations to maintain insider lists and to report management transactions (Directors’ Dealings). Violations of these duties may be subject to sanctions, particularly fines by BaFin or criminal consequences pursuant to § 119 WpHG. In addition, issuers are required to take organizational and technical measures to ensure compliance with all supervisory requirements.
Who supervises the Official Market and how is the legal oversight structured?
Supervision of the Official Market is carried out by various bodies. At the state level, the respective stock exchange supervisory authority is responsible, while at the federal level, BaFin ensures compliance with legal provisions for investor protection and market integrity, for example with regard to insider trading, market manipulation, or disclosure obligations. The trading surveillance office (HÜSt) of the respective exchange oversees trading on site. As part of European harmonization, ESMA and other European supervisory authorities also monitor compliance with EU regulations. Oversight tools include preventive audits, continuous market monitoring, and repressive measures in the event of violations.
What legal consequences result from violations of Official Market obligations?
Violations of legal obligations in the Official Market may entail various consequences. Administratively, BaFin may impose fines for breaches of disclosure, transparency, and insider obligations in accordance with § 120 ff. WpHG. At the exchange level, there may be suspension or even revocation of the admission of the affected securities. In the case of serious violations, such as market abuse or serious insider trading, criminal sanctions can also be imposed. Injured investors may have civil claims for damages. Further, reputational damage can occur, which may significantly impair trust in the company and its access to the capital market.
What legal remedies are available against measures by the stock exchange supervisory authority or BaFin?
Issuers may generally appeal measures by the stock exchange supervisory authority or BaFin – such as rejection of admission, suspension from trading, or imposition of fines. This includes, initially, the right to a hearing and to file an objection under the provisions of the Code of Administrative Court Procedure and the Administrative Procedure Act. Appeals to the administrative courts are permitted against rejecting or harmful administrative acts. In addition, there are special statutory rules, such as those in the BörsG or WpHG, which govern further procedures and deadlines. For matters of EU law, recourse to the European Court of Justice (ECJ) may ultimately also be available.
How do legal requirements in the Official Market differ from those in other market segments?
The legal requirements of the Official Market are the strictest of all market segments in Germany. By comparison, the Regulated Market and Open Market, for example, impose lower requirements for prospectus obligations, less extensive disclosure and reporting duties, and more relaxed rules for the admission of securities and market supervision. While in the Open Market some legal obligations only apply to a limited extent or not at all and there are significant simplifications in disclosure and reporting, the Official Market stands for the highest possible transparency and investor protection. This has significant legal and organizational implications for issuers.
